Fourteen stocks for 2014 halftime report

Kirk Spano, the winner of the first MarketWatch competition
to find the world’s next great investing columnist, is a registered investment
advisor and founder of Bluemound
Asset Management, LLC which seeks to provide investors with greater safety,
growth, income and freedom. Kirk’s biography and various business endeavors can
be found at KirkSpano.com. Follow Kirk on
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In the January Trading Strategies package, I offered up a focused portfolio of Fourteen stocks for 2014. So far, the group has paid off big. Equal weighting the portfolio on Jan. 2 (which nobody, including me, did) would have netted over a 25% return year-to-date (note that I split a position between Lab Corp and Quest Diagnostics).The year has a long way to go, however. Here is a brief review of some of the positions, and what I am doing now.

SunEdisonUS:SUNE
which I first recommended in 2012 when it was called MEMC Electronics, is once again my leading holding with a return of 74% so far. In 2013, the solar company was the leading mid-cap stock on the Nasdaq, returning 306%. While skepticism remains from the investing public about solar, there is little doubt it is a leading growth industry and will remain so for years to come. When people like Warren Buffett get involved in the industry, you know there is something sustainable.

SunEdison is not for the faint of heart and is not a textbook Buffett stock. It is a volatile momentum stock for now and subject to significant financial pressures, including a leveraged balance sheet. Tightening credit markets will likely cause a slowdown in business at some point which cuts growth. When that happens, there could be a quick and significant drop in its share price. Longer term however, any fallback in share price is a buying opportunity in my opinion.

I trimmed holdings once this year in SunEdison to take gains, which in hindsight turned out to be a mistake. I have been selling puts repeatedly since selling those shares, however, I have seen those options expire all but one time. So far, I have not given up much in gains due to the option premium accrual, but that is unlikely to last if the stock keeps running. I am actively looking to expand my holdings in SunEdison, however, Mr. Market hasn't given me many reduced-risk opportunities. SunEdison is my fourth-largest holding at 4% to 8% of stock portfolios.

“Fourteen Stocks for 2014” Halftime Report Chart

Oil, natural-gas, and oil and gas service stocks have been among my leaders, as well. I recommended all of the companies I am invested in throughout 2012 before most analysts started jumping on board last autumn and this year. In general, the run up in share prices is nearing the end of a valuation cycle. Price-to-earnings (P/E) ratios are nearing frothy levels usually associated with a slowdown in stock-price appreciation.

Chesapeake is the rare undervalued-asset play that could reflect its true value someday, which I believe to be in excess of $60 per share. Usually, companies that have valuable assets which don't reflect in share price have some deep impairment that is never overcome. Chesapeake however, is in the early innings of a resurgence that has been led by Carl Icahn's cleaning up of the balance sheet and a refocusing of its business.

The rise in natural-gas prices to more historically normal levels and an increase in oil production are both positives for the company. This week's spinoff of Seventy Seven Energy is another step in the right direction for Chesapeake, as that transaction further reduces its debt and is likely to fortify margins. The company is also a potential takeover target. Chesapeake is my third-largest holding at 6%-8% of stock portfolios.

AppleAAPL, +1.78%
is my second-largest holding at 8% to 10% of stock portfolios. I covered the company near its bottoming out last year and made a strong recommendation to buy the stock. What we are seeing now is the resurgence of a technology company that has a niche market in about 15% of the most well-off people on the planet. While some fret over Samsung's and Google's
GOOG, +1.11%
larger market shares, I would challenge anybody to explain why having a dominant niche in more affluent customers is a bad thing.

Very importantly, Apple is embarking on a huge new product cycle. It is introducing new iPhones with larger screens that are nearly unbreakable, new iPads and the breathlessly awaited iWatch. In addition, Apple's acquisition of Beats, which comes with massive star power, is likely to go down as a coup.

Over the next few years, we will see Apple entrench themselves in mobile and online payments, automobile technology and virtual-home controls. All of these things are already in motion and not speculation. The only question is what will be the most successful and profitable. I do not put it by Apple to establish high-end niches across the board.

On Scutify, I gave Apple a price target of $1100 before the 7:1 split, equal to $157 split adjusted. I now think over the next three to seven years that will prove to be too low of an estimate. Like Chesapeake, Carl Icahn is involved with Apple — usually a good occurrence for share holders. Unlike Chesapeake, this time I got in just ahead of and at a lower price than Icahn. Apple is also a favorite of David Einhorn and several other billionaire investors.

Because I know people will ask, my largest holding has become Exact SciencesEXAS, +0.41%
at about 12% of stock portfolios. I have owned the company for six years in many accounts and have had quite the nice ride up. I am playing with house money at this point.

Exact has imminent FDA and CMS catalysts. If the news is as I expect, Exact's upside is still tremendous, especially given the huge short interest. I am leveraged with calls at present, however, I also own out-of-the-money puts to hedge against something unexpected and catastrophic. Exact is a lesson in long-term patient investing, risk management (it is a speculative biotech), and ongoing research and analysis. Another "not Buffett" stock.

I have recently added Barrick Gold
ABX, -2.20%
again after trading it and believe from the middle teens it is a buy as an inflation hedge and a rebound play. I have had a position in Veolia Environment
US:VE
since 2011 and added to it early this year. I believe both companies have the potential to reach previous highs sometime during this decade.

The laggards in the portfolio this year have been financial companies. While AIG
AIG, -0.01%
is up 7.42% I am no longer invested in it since selling out at about breakeven in order to add to companies with stronger up trends. I am also out of Citigroup
C, -0.93%
and Global Cash Access
US:GCA
taking small losses on both. I am looking for opportunities to get back into AIG and Citigroup. I have eliminated Global Cash Access from my universe as it is retrenching its business after some contract disappointments and does not appear to have the asymmetric upside I believed it did.

I am also out of Lab Corp
LH, +0.16%
and Quest Diagnostics
DGX, +0.70%
as neither offers the type of upside I am looking for despite being good companies. This is a lesson I think all investors need to continually remind themselves of. While there are plenty of good companies out there, not many offer the type of reward for the risk found in most equities.

Of note, I am holding about 12% of most stock accounts in cash currently. I typically carry 4% to 20% cash to be used during market pullbacks.

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